| Technical Analaysis CNQ EPIQ ECA EOG GSS GG |
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| Tuesday, December 26, 2006 |
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Weekend Update - CNQ, ECA, EPIQ, EOG, GSS & GG Charts
Bullish Continuation Triangle Patterns - Ascending Triangles, and Symmetrical/Contracting Triangles
In this update I would like to discuss Triangles and what they represent and mean in technical analysis. I am bringing up this type of pattern because these patterns are appearing on most of our portfolio stocks chart's. Common types of bullish continuation triangle patterns that appear: are Ascending Triangles and Symmetrical/Contracting Triangles. When you see a triangle occur on a chart, it is a sign of a consolidation / sideways or range bound move in a stock's price. Triangle patterns are always corrective and they counter the primary uptrend. For example,if a stock has been in a bullish trend for years, when a triangle occurs you will know that it is a corrective pattern occurring while it remains in the larger uptrending move. Triangles appear and begin to occur in the 3rd to the 4th waves. They form due to the fluctuations in human emotion regarding the stock's price. This emotion,( happy glad, mad or sad), is what makes a correction occur.
Canadian Natural resources- (CNQ) - OIL - Monthly Chart - Corrective Channel - Optionable
CNQ is a medium risk Oil play. The Monthly chart illustrates that CNQ has spent the last year in a wave 3 to 4 correction. Remember corrections always occur against the primary trend. The wave 3 to wave 4 correction is not over until it resumes the primary up trend by breaking the down trend channel at $50.00 or higher. What you see on the chart is not a bull flag. Bull flags only occur on daily charts. What you see is a corrective channel. Within that channel you can see an orderly ABC correction. This year, CNQ corrected all the way to it's 34 EMA on the monthly chart at $40.29. You may recall from previous updates that the 34 EMA acts as a magnet for price during corrections/pullbacks. CNQ held that 34 EMA and volume came in to support the stock at that level. A breakout of the downtrend line ensued. CNQ is now backtesting the breakout line on light volume. It is now beginning to trade at above the 13 EMA, which is bullish and should continue higher in the upcoming 5th wave move. CNQ is currently down 4.20% on the month and is trading at $51.99. and closed at $66.68. Indicators and oscillators are in 1-2-3 bullish trend reversal. Although the stochastic oscillator has dipped, it remains above the 50 level and is reversing to the upside, both of these actions are bullish. CNQ is an investor trade, meaning that it is meant to be held for 6 to 12 months, or until price target is reached at $70.00.
EnCana Corp. - (ECA) - OIL - Weekly Chart - Symmetrical Triangle within Larger Ascending Triangle -Optionable
ECA is a lower risk Oil play. ECA trades with a P/E of 5.81 and presents itself as a good value and fundamental play. If this is what you are looking for, you may want to start building a position in this low P/E stock. The weekly chart of ECA illustrates that, it is in the process of forming a large ascending triangle pattern. The chart also shows us that it contains a pattern within a pattern. The primary pattern is the bullish ascending triangle. This is a bullish continuation pattern. The secondary pattern, is a Corrective Contracting symmetrical Triangle. The latter pattern, always contains 2 tops (B, D) and 3 (C,D,E) bottoms. ECA has been moving up steadily ever since it retested it lows this year at $42.75 ( wave C). You can also see that steady volume, showing accumulation, has been supporting the stock's price since the beginning of October '06 while it was on it's move up to wave D. However, when ECA hit this wave D or resistance at the top of the symmetrical triangle, the price promptly reversed southwards. ECA is now pulling back towards it's uptrend line to put in it's final corrective wave E. The stock's price is currently trading below it's moving averages while it corrects to the uptrend around $43.00. Indicators and Oscillators remain in a 1-2-3 bearish trend reversal. In the grand scheme of things this price drop is bullish and just indicates consolidation, unless of course, it drops below that level. ECA is an investor trade, meaning that it is meant to be held for 6 to 12 months, or until price target is reached at $70.00.
EOG Resources, Inc. - (EOG) - Weekly Chart- Symmetrical Triangle within Larger Ascending Triangle Pattern - Energy Sector - Optionable
EOG presents itself as a value play with a P/E of 11.47. This is a macro Oil play. EOG is in an ascending triangle pattern. Within that triangle pattern, you can see a smaller symmetrical triangle pattern. EOG has been contracting up and down within the symmetrical triangle and it has held it's uptrend line and then bounced right off of it. If you look at the volume, you will see that heavy volume has come into support the dips to the uptrend line which is bullish action. EOG is currently trading down and below it's moving averages and heading towards it's uptrend line to put in the 3rd bottom around support $60.00 at wave E. The indicators and oscillators are still in a 123 bearish trend reversal and showing signs of whipsaw. EOG is also a lower risk investor trade, meaning that it is meant to be held for 6+ months or until price target is reached at $95.00. This is a macro play .
Epiq Systems, Inc. - (EPIQ) - Monthly Chart - Rectangle with a larger Ascending Triangle Pattern - Business Software Services - Optionable
EPIQ is a bankruptcy software play. In order to see EPIQ's big or longer term picture, you would want to look at the monthly chart. As you can see, EPIQ has been trading in a slim Jim rectangle pattern for the past 6 years, and it is now forming a large bullish ascending triangle pattern. The moving averages are converging in a bullish cross supported by good volume. In addition, the Indicators and oscillators are oversold and have bottomed and have reversed upwards. Furthermore, the Aroon is a 1-2-3 bullish trend reversal. This is bullish.
Now, if you were to look at the daily chart of EPIQ, you would see that it was forming a wedge within the monthly ascending triangle. The wedge is a smaller pattern within the larger ascending triangle pattern. Furthermore, EPIQ has completed it's wave 3 to wave 4 downtrend. It is now in a wave 4 to wave 5 uptrend. It is important to know that wave 5 is typically a slow moving wave. Accordingly, it will take time (i.e. months) for EPIQ to complete it's move to price target (wave 5), which is also resistance. As you can see, resistance is quite far off at $25.00. It could go as high as $35.00.
For those of you that entered EPIQ around the $14.00 range, you would want to know if this trade matches your trading style and trading objectives. Does this time frame match your trading criteria? Is it a short term trade or a longer term trade for you? Are you playing the monthly chart, weekly chart, daily chart, or 60 minute chart? If you are playing the monthly chart, for example, you would not want to by short term options on it. It is very important to trade the correct vehicle for the chart, it should match the stock chart's time frame. If you are trading the monthly chart do not watch the 60 minute chart. As I have already stated, EPIQ is in a large ascending triangle on the monthly chart, it has been up 20% and also down 10% /15% since it was added to the portfolio table. Short term traders have already sold EPIQ with 10% to 15% gains because that matches their trading style. Swing traders and investors, on the other hand, are still holding EPIQ from the entry alert because that matches their trading plan.
Goldcorp, Inc. (GG) - Weekly Chart- Falling wedge with larger Ascending Triangle Pattern - Gold- Optionable
GG is a medium risk Gold play. This is my favorite gold play. GG, like AUY is also in a bullish ascending triangle pattern. Within this pattern is a smaller bullish falling wedge pattern. Within the falling wedge, you can also see a text book ABC pullback to the longer term uptrend line. Furthermore, you can see the bullish cross of the moving averages which will likely turn into a bullish fan in time. It is currently pulling back on light volume.This is part of the normal stair stepping process of a stock's move. The Aroon indicator is still in a 1-2-3 bearish cross, but the rest of the indicators and oscillators are bullish and moving up along with price. GG is an investor trade, meaning that it is meant to be held for 6+ months or until price target is reached at $44.00. I don't recommend over trading this stock. Please read Dr. Janice's The Man in the Green Bathrobe.
Golden Star Resources Ltd. - (GSS) - Monthly Chart - Symmetrical Triangle - Gold - Optionable
GSS is a medium risk Gold play. The monthly chart of GSS illustrates that it is in a bullish contracting symmetrical triangle. In addition, it has completed it's counter trend, wave 3 to wave 4 correction. GSS is now trading below it's moving averages on the monthly chart. When it crosses above the $3.20 area and trades above the EMA's, this will be considered bullish action because the moving averages are attempting to converge and cross over. You can also see that the Aroon indicator has recently had a bullish cross, albeit a weak one, but a cross nevertheless. Furthermore, if you look at the WM%, the PPO, and stochastics you can see the beginnings of bullish divergence appearing. This is the beginning of a 5th wave move up for GSS. The buy alert for GSS was triggered at $3.23. It is an investor trade, meaning that it is meant to be held for 6 to 12 months, or until price target is reached at $10.00. You do not need to watch every tick on this stock, just buy and hold it as an investment until price target is reached at $10.00.
Edited by Daisy
Andrea Victoria Friend aka Daisy
Editorial Assistant for Trending123.com
daisy@trending123.com
Stock Charts are nothing more than a collection of sticks on a grid that allow our brains to see what group think perceives an equity, index, currency, or commodity is currently worth on a minute to minute basis.
That “group think” shows up in the form of geometrical shapes and trends. Those geometrical shapes we call patterns. Those trends we call bullish and bearish. Because people are human and humans experience the same types of feelings, they are expressed throughout the day in the form of buying and selling stocks, currencies, or commodities over and over for a variety of reasons.
Those patterns measure the distance as to how far the collective masses feel something is worth. The reasons are typically emotionally related and often you will hear the words fear and greed as the two main culprits. The words “bullish and bearish” are not feelings but definitions of the collective “group think” for example……..
Bullish is “a positive interpretation of the behavior of an equity or the market as a whole based on an extended rise in price.” Bearish would be the opposite but both are “adjectives” describing the opinion that a stock, or a market in general, will decline and/or rise in price. They are not “feelings” but “adjectives”.
Bullish and Bearish as mentioned above are also trends. And the reason why they are trends is because price action is not static, it is constantly moving, the movement has a definite direction and the direction is what tells us which way “patterns” (geometrical shapes) will break. In simple terms “up or down”.
The rate of speed in which price action moves depends on what we call the “wave structure”. Wave structure can come in two forms “impulsive or corrective”. Those two forms can be found in rising and declining markets. You might have heard the word “parabolic’ that is what traders often call something that rises so fast that it’s actually “curved in a way that is not symmetrical”. (that is the very definition of parabolic by the way). I often have said “parabolic’ is not a pattern but something we can label as impulsive. Stalling or consolidating are words we use to describe corrections on a “micro scale”. A waterfall (a steep descent) or downdrafts (unstable, or distribution) are other (adjectives or verbs) we use to describe something in a correction but maybe on a more “macro level”.
When analyzing Direction (the trend) Speed (impulsive or corrective) and Distance (geometrical shapes) what we really are saying is
- Which way
- How fast
- How far
- Corrections are always against the trend
- Impulse or Motive waves are always what define the trend
- According to wave structure we are always moving in 3's and 5's with variations (keeping in mind that every wave has siblings) same directional waves of the same degree within a larger wave)
A summary of Rules and Guidelines for Waves
Impulse Rules (Examples)
1. An impulse always subdivides into 5 waves
2. Wave 1 always subdivides into an impulse or rarely a diagonal
3. Wave 3 always subdivides into an impulse
4. Wave 5 always subdivides into an impulse or a diagonal
5. Wave 2 always subdivides into a zigzag, flat, or combination
6. Wave 4 always subdivides into a zigzag, flat, triangle or combination
7. Wave 2 never overlaps wave 1
8. Wave 3 always moves beyond the end of wave 1
9. Wave 3 is never the shortest wave
10. Wave 4 never moves beyond the end of wave 1
11. Never are waves 1,3 and 5 all extended
Guidelines
1. Wave 4 will almost always be a different corrective pattern than wave 2
2. Wave 2 is usually a zigzag or a zigzag combination
3. Wave 4 is usually a flat, triangle or a flat combination
4. Sometimes wave 5 does not move beyond the end of wave 3 (in which case it is called a truncation)
There are many more guidelines but this is a small step on the road to knowledge
There are rules and guidelines for everything
Examples
1. Diagonals have rules and guidelines which also fall in the motive wave category
2. Corrective Waves fall into 3 types of triangle formations
A. Contracting Triangles
B. Expanding Triangles
C. Barrier Triangles
3. Within corrective waves we have
A. Zigzags
B. Flats
C. Combinations (Combinations comprise two or three corrective patterns separated by one (or two) corrective pattern(s) in the opposite direction labeled X (The first corrective pattern is labeled W, the second Y, the third if there is one, Z.)
Learning the basics of Corrective and Impulse Wave Structure is essential into understanding "speed" and plays a small role in distance when it comes to corrective patterns.
No market approach other than the Wave Principle gives as satisfactory an answer to the question, "How far down can a bear market be expected to go?" The primary guideline is that corrections, especially when they themselves are fourth waves, tend to register their maximum retracement within the span of travel of the previous fourth wave of one lesser degree, most commonly near the level of its terminus. Note in Figure 23, for instance, how wave 2 is drawn ending at the level of wave four of 1.
Elliott noted that parallel trend channels typically mark the upper and lower boundaries of impulse waves, often with dramatic precision. Analysts should draw them in advance to assist in determining wave targets and to provide clues to the future development of trends.
To draw a proper channel, first connect the ends of waves two and four. If waves one and three are normal, the upper parallel most accurately forecasts the end of wave 5 when drawn touching the peak of wave three, as in Figure 23. If wave three is abnormally strong, almost vertical, then a parallel drawn from its top may be too high. Experience has shown that a parallel to the baseline that touches the top of wave one is then more useful.
The question of whether to expect a parallel channel on arithmetic or semilog (percentage) scale is still unresolved as far as developing a definite tenet on the subject. If the price development at any point does not fall neatly within two parallel lines on the scale (either arithmetic or semilog) you are using, switch to the other scale in order to observe the channel in correct perspective. To stay on top of all developments, the analyst should always use both.
Within parallel channels and the converging lines of diagonal triangles, if a fifth wave approaches its upper trendline on declining volume, it is an indication that the end of the wave will meet or fall short of it. If volume is heavy as the fifth wave approaches its upper trendline, it indicates a possible penetration of the upper line, which Elliott called “throw-over." Throw-overs also occur, with the same characteristics, in declining markets.
VOLUME
In normal fifth waves below Primary degree, volume tends to be less than in third waves. If volume in an advancing fifth wave of less than Primary degree is equal to or greater than that in the third wave, an extension of the fifth is in force. While this outcome is often to be expected anyway if the first and third waves are about equal in length, it is an excellent warning of those rare times when both a third and a fifth wave are extended.
At Primary degree and greater, volume tends to be higher in an advancing fifth wave merely because of the natural long term growth in the number of participants in bull markets.
The reasons “why” and the question "what time” are something we can’t tell you in advance but we can shed some light on both as to the reasons behind what we don’t know.
As to why people buy and sell it’s because they do it to make and lose money (this is the “why” portion of the question that we don’t have the answer to). From the average Joe to the most brilliant of people they make good and bad choices every day in the stock market. It’s identifying through trends, patterns, and waves what choices they will make before they make them and then profiting from it.
CNQ
ECA--WEEKLY (SEE IMAGE ABOVE)
EOG--WEEKLY
EPIQ--MONTHLY
GG--WEEKLY
GSS--MONTHLY
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